Retirement advice for the non-millionaire

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Although investors with pint-sized retirement accounts often have the greatest need for solid financial advice, the reality is that top-notch financial advice more likely goes to those with at least $1 million to invest.

The reason comes down to pure mathematics, said Andy Rachleff, chairman of Wealthfront, a Palo Alto, Calif.-based asset manager.

Most wealth managers charge clients an annual fee of about 1 percent of assets under management, Mr. Rachleff said. Assuming a talented portfolio manager earns $500,000 a year, he or she would need to attract at least $1 million per client on 50 clients just so the company breaks even on compensation alone.

That break-even amount grows to $1.5 million per client when support staff and overhead costs are included, he said. Factor in a 50 percent gross margin, and a portfolio manager with 50 clients at a top wealth management firm would need at least $3 million per client.

"These are not opinions. These are facts," Mr. Rachleff said. "If I change assumptions on what I expect to earn or the number of clients I can handle, the minimum account numbers change. A junior adviser will accept a lower minimum because his earnings expectations are lower."

But high-end financial advice might not be the best fit for small investors.

Eleanor Blayney, consumer advocate for the Certified Financial Planner Board in Washington, D.C., said advisers who charge 1 percent management fees typically also offer comprehensive financial planning on taxes and estates, which is an expensive service that people with a modest amount to invest may not benefit from as much as high net-worth investors.

"Does it make sense for someone with $300,000 to be working with a high-end adviser?" she asked. "And can they really afford it? The fee may not be affordable in their overall plan. It's not that they don't need advice, but maybe they don't need it at that price."

She suggests that people with smaller accounts could benefit from buying shares in a well-diversified and managed mutual fund, or enrolling in a target date fund that automatically adjust to a more conservative mix of assets as the account owner gets closer to retirement.

Another option would be to meet with a portfolio manager, pay a flat fee for advice and manage the portfolio using that advice.

One company that offers that service is Garrett Planning Network, a nationwide network of fee-only financial advisers -- most of whom are certified financial planners. Clients choose from a list of about 320 advisers who charge $180 to $240 an hour for a telephone consultation on portfolio management, which the client implements.

"We are here to make competent, objective advice accessible to all people," said Sheryl Garrett, founder of the network.

Clients can hire advisers for all tasks related to portfolio management, such as opening an individual retirement account; however, Ms. Garrett said, "Getting specific advice and empowering someone to implement a financial plan is probably the greatest use of our time and the client's money."

Rebalance IRA, based in Palo Alto, Calif., was founded two years ago to manage money for people who had saved $100,000 to $500,000. Each client gets an adviser for an annual fee of 0.5 percent, which amounts to $500 for a $100,000 account.

An advisory committee of investment industry professionals creates a handful of model portfolios and the company invests its clients money in those models based on their individual needs, said Mitch Tuchman, co-founder and managing director of Rebalance.

"We figured out a better way to offer really good advice at a low price," Mr. Tuchman said. "This market wants to know if they will have enough money to retire on and they are not getting good advice on this topic, which is the single biggest thing on their minds. Our service is built around giving personalized advice on retirement investing."

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